Taxes

A Write-Off That Shows Tax Reform Will Be No Game

Theodore Jones has had season tickets on the 43-yard line at Tiger Stadium, home of the perennial football powerhouse Louisiana State University, for almost 20 years. The seats, along with two others, cost him $5,340. That’s $1,640 for the tickets’ face value, plus $3,700 in mandatory donations that Jones gets to write off. The Baton Rouge lawyer lobbied Congress for that tax break back in 1986. It now benefits thousands of sports fans, and based on data compiled by Bloomberg, costs the U.S. Treasury more than $100 million a year.

Mitt Romney and congressional Republicans say they’ll slash many deductions to broaden the tax base and help fund a 20 percent tax cut across the board. The problem is, there are hundreds of write-offs and each has a rabid fan base. The ticket deduction would be tough to jettison because it’s “often associated with state institutions,” says Marcus Owens, a former head of the Internal Revenue Service’s Exempt Organizations division. “In a lot of states, a significant percentage of the adult population went to some state institution, has an allegiance to the athletic teams, and represents a considerable voting bloc.”

For sports that draw big crowds, colleges typically assign a face value to a ticket and then demand a donation as a condition of sale. Fans wrote off that donation for years. But in 1986 the IRS ruled that the ticket premiums weren’t deductible. During that year’s debate over tax reform, LSU’s then-athletic director asked Jones, a lobbyist for the state of Louisiana, to fight to preserve the exemption. He approached the late Louisiana Senator Russell Long, who crafted an amendment with the late Texas Representative J.J. Pickle that allowed ticket buyers at LSU and the University of Texas at Austin to write off 100 percent of their donations. In 1988, Congress made all public and private colleges eligible for the break but reduced the deductible amount of the donation to 80 percent. The Joint Committee on Taxation estimated the same year that the write-off would cost the Treasury less than $500,000 a year.

While there’s no national tally of how many schools are benefiting from the break or the exact amount it costs taxpayers, Bloomberg assembled a snapshot of the data through public records from 54 state universities in six of the largest football conferences. The 34 that track ticket donations received a total of $467.2 million for the 2010-11 fiscal year. As much as $373.7 million of that is deductible. Based on a 28 percent individual tax rate, that would cut federal revenue by $104.6 million. (The universities surveyed don’t break out corporate purchases.)

The actual loss may be much greater. Andrew Zimbalist, an economist at Smith College who’s written 12 books on the business of sports, says, based on Bloomberg’s sampling, sports fans could well be paying colleges $1 billion a year in tax-deductible ticket donations.

Colleges have come to rely on the money to prop up teams that don’t make any revenue and to fund student-athlete scholarships. “Those kinds of deductions are like fertilizer to a farmer. They increase the yield,” Jones says, paraphrasing a line Long used when President Jimmy Carter wanted to cut the business write-off for the three-martini lunch. Over the years, Zimbalist says, the IRS has attacked various tax breaks for universities until it’s gone “blue in the face” and has “basically succumbed” to Congress’s unwillingness to budge.

LSU is counting on Congress to continue to stand firm. It’s doubling the number of luxury boxes and premium club seats at its 92,542-seat stadium. That’ll enable the school to increase revenue from seat donations by as much as $15 million, according to R.G. Richard, who heads LSU’s booster organization. Even after the expansion, there’ll be a waiting list of 1,600 fans ready to empty their pockets for season tickets—and take advantage of the perk that goes with them, as long as it’s available.

The Football-Ticket Tax Break

• College teams can require a donation for tickets, on top of the official price.

• At LSU, donations range from $210 to $3,000 per football ticket.

• Schools use the cash to support teams that don’t make money and for scholarships.

• There’s a perk for ticket buyers. They can write off 80 percent of their donation.

• For the U.S. Treasury, all this means a loss. In fiscal 2010-2011 it was more than $100 million.